Can You Get a Title Loan if You Still Owe on Your Car?

Many individuals consider title loans, which use a vehicle as collateral. A common question for car owners with an outstanding loan is whether an additional title loan is possible. It is often possible to secure a title loan even with an existing lien, a process known as a second lien title loan. The availability of such loans depends on the vehicle’s equity and state regulations.

Obtaining a Title Loan with an Existing Vehicle Loan

Securing a title loan with an existing auto loan involves a “second lien” or “junior lien.” The original auto lender holds the first lien, a legal claim on the vehicle’s title. A second lien title loan means another lender places a subsequent, secondary claim on the same vehicle.

Lenders considering a second lien assess the vehicle’s available equity, which is the difference between its current market value and the outstanding balance of the first loan. This equity serves as collateral for the second title loan. Not all title loan lenders offer second lien loans due to increased risk. State laws and lender policies influence availability.

Managing two lienholders often makes second lien title loans less common. Some lenders might require permission from the first lienholder to place a second lien. This permission is not always granted, as it can complicate the first lender’s ability to recover funds in case of default.

Determining Your Vehicle’s Available Equity

Assessing a vehicle’s available equity is a foundational step. Equity is calculated by subtracting the outstanding balance of the existing auto loan from the vehicle’s current market value. For example, if a car is valued at $15,000 and has an outstanding loan balance of $7,000, the available equity is $8,000. Lenders use pricing guides like Kelley Blue Book (KBB) or NADA Guides to appraise value based on make, model, year, mileage, and condition.

The “loan-to-value” (LTV) ratio helps determine the maximum loan amount. LTV compares the loan amount to the vehicle’s cash value. A lower LTV ratio indicates less risk for the lender. For a second lien, lenders consider the total value of all liens against the vehicle’s market value. Lenders have specific LTV thresholds, sometimes allowing loans up to 50% of the car’s equity or total value.

Applying for a Second Lien Title Loan

The application process for a second lien title loan is similar to a first lien, but with additional requirements. Applicants need a valid government-issued identification and proof of income, such as pay stubs, to demonstrate repayment ability.

Information related to the existing car loan is required, including documentation detailing the outstanding balance and payment history of the first lien. This allows the second lien lender to assess total debt and available equity. Some lenders may also request proof of residency, vehicle photos, and insurance.

Applications can be completed online or in person. Lenders review vehicle equity and repayment capacity. The approval timeline for a second lien loan may be longer due to coordination with the existing lienholder.

Understanding Loan Terms and Lien Priority

Understanding the specific terms of a second lien title loan is important. These loans often have higher interest rates and fees due to increased risk. Annual Percentage Rates (APRs) can range significantly. Borrowers may incur additional charges such as lien perfection, title verification, and document processing fees. Late payment fees may also apply.

Repayment schedules are generally short-term, often 15 to 30 days, though some lenders offer longer terms. Repayment involves regular installments.

“Lien priority” dictates the order lenders are repaid in default. The original auto loan lender holds the first lien, having the primary claim on the vehicle. The second lienholder has a secondary claim, meaning the first lienholder’s debt must be satisfied before the second lienholder receives proceeds. If the vehicle is repossessed due to default, the first lienholder generally seizes it. Borrowers remain obligated to both lenders, and failure to meet payments can lead to repossession.